WAIVER OF CONTRACT DUE DATE

A recent Armed Services Board of Contract Appeals (ASBCA) opinion by Judge Craig Clarke reminds us of the rule in DeVito v. United States, 413 F.2d 1147 (Ct. Cl. 1969) that failure of the government to terminate within a reasonable time and reliance by the contractor results in waiver of default.

We also are reminded of FAR 49.402-3 which states:

[I]f the Government has taken any action that might be construed as a waiver of the contract delivery or performance date, the contracting officer shall send a notice to the contractor setting a new date for the contractor to make delivery or complete performance.

Judge Clarke begins his decision with the axiom that the government bears the burden of proof in a termination for default case.  He then concludes that a series of communications between the government and the contractor was confusing, contradictory and consistently encouraged the contractor to continue performance. At the same time, the government failed to establish a new delivery date after the old one had expired.  The contractor, although resistant, never manifested an unequivocal and definite intent not to continue performance and therefore did not anticipatorily repudiate the contract. (Repudiation requires evidence of unequivocal intention not to proceed.)

Judge Clarke went on to say the government was in control of the situation but failed to act to protect its right to terminate for default.  The fact that the government failed to reestablish a delivery date, waited 21 months to terminate while at the same time encouraging performance leads to the inevitable conclusion that the government waived its delivery date and its right to terminate for default. The contractor remained sufficiently "engaged" to minimally establish detrimental reliance on the governments behavior.

The lesson:  Heed FAR 49.402-3.  If the governments actions could even be construed as a waiver of the delivery or performance date, the contracting officer shall establish a new date.

http://www.pubklaw.com/rd/boards/asbca57667.pdf

bill@spriggslawgroup.com       http://www.spriggslawgroup.com/
                                                 http://spriggsconsultingservices.com/

RECOVERING THE COSTS OF PREPARING AND NEGOTIATING REA's

Judge Thomas Wheeler of the Court of Federal Claims (COFC) recently has written quite a treatise about the recovery of the costs of preparing and negotiating a request for equitable adjustment (REA).  Since Judge Wheeler is one of our favorite writers, we'll share his language verbatim:

When a contractor incurs costs due to (i) formal or constructive changes to the contract; (ii) governmental defect or delay; or (iii) the Government's breach, the contractor is entitled to request an equitable adjustment ('REA').  An 'equitable adjustment' is an adjustment to a contract's price or schedule under a Changes clause to compensate a contractor for adverse governmental action.  REA preparation 'normally requires a substantial effort, including contract analysis, factual investigation, legal entitlement analysis, the drafting process, the collection of documentary evidence and the pricing of the equitable adjustment.'  (Citations omitted.)

Basically, the REA preparation and negotiation costs are allowable unless they are incurred in connection with the prosecution of claims or appeals against the government.  So Judge Wheeler summarizes the law by stating the costs are presumptively compensable as part of the equitable adjustment where:

(i) The contractor incurred the costs due to (a) formal or constructive changes to the contract, (b) governmental defect or delay, or (c) the Government's breach;

(ii) (a) The contractor incurred the costs in furtherance of information exchange or negotiation with the Government, whether or not it ultimately succeeded in forestalling a Board appeal, or (b) the Government received some other benefit from the expenditure; and

(iii) Where applicable, the contract incurred the costs before the actual filing of its Board appeal.  (Citations omitted.)

The practical lesson to take from Judge Wheeler's recitation of the law is that the costs of preparing, presenting and negotiating an equitable adjustment in contract price or schedule are presumed allowable as part of the equitable adjustment up until the time that the the REA is turned into a claim or until an appeal is taken (whether to the Board or the COFC).

bill@spriggslawgroup.com      http://www.spriggslawgroup.com/
                                                http://spriggsconsultingservices.com/

IN-SOURCING PROTEST DENIED

Judge Eric Bruggink of the United States Court of Federal Claims (COFC) recently has held the court has jurisdiction to hear protests of in-sourcing decisions but he has denied the contractor's motion for a preliminary injunction.  The opinion is important because Judge Bruggink joins Judge Firestone of the COFC in finding the court has jurisdiction.  He also agrees with Judge Firestone and disagrees with Judge Allegra on the issue of whether the plaintiff has standing to bring the suit.

Judge Bruggink first tackles the interpretation of the statute giving the COFC jurisdiction.  Plaintiffs are allowed to bring suit in the COFC for "any alleged violation of statute or regulation in connection with a procurement or proposed procurement."  The word procurement encompasses all stages of the process of acquiring property or services beginning with the process for determining the need and ending with the closeout of a contract.

The statutorily-required cost comparison of doing work in house versus sending it out was the beginning of the procurement process, says the court.

Next, Judge Bruggink deals with whether the plaintiff was an interested party.  He determines the plaintiff had a direct economic interest in the proposed procurement.  He also finds "prudential standing" which Judge Allegra failed to find in a similar case.  Prudential standing is used to restrict jurisdiction to cases properly brought to court.  In other words, the case should involve statutes designed to protect the interests of the plaintiff bringing the suit.

In a similar case, Judge Allegra declined jurisdiction because he said the cost comparison statute was designed to protect the government, not the contractor. Judge Firestone reached the opposite conclusion and Judge Bruggink agrees with Judge Firestone.  Contractors at a minimum have an interest in ensuring the cost analysis is done properly.

In the end, however, Judge Bruggink denies the plaintiff's motion for a preliminary injunction.  Equity favors the vigilant and here plaintiff waited 28 days before the end of the last option extension to file its complaint.  Plaintiff's complaint about how the cost comparison was done was weak.  The court also found the disorder that would result from an injunction was exacerbated by the plaintiff's delay in bringing the suit.  Finally, the court felt military readiness might be adversely affected by the granting of an injunction.

The case tells contractors that it is possible to challenge a decision to in-source; but as with any action in the COFC, the plaintiff bears a heavy burden to convince the court to intervene.

bill@spriggslawgroup.com    www.spriggsconsultingservices.com

HOW TO WRITE A REQUEST FOR EQUITABLE ADJUSTMENT (REA)

You will not find instruction in any regulation on how to write a request for equitable adjustment (REA).  There is no form to fill out as there is, for example, with the termination for convenience forms in the Federal Acquisition Regulation (FAR).  What's more, you will not find a definition of equitable adjustment in FAR Part 2 although you will find "claim" defined there (the REA becomes a claim when certified as required by statute and regulation).  So where do you look for guidance?

One place is Bruce Constr. Corp. v. United States, 324 F.2d 516 (Ct. Cl. 1963) where the predecessor to the present day Court of Appeals for the Federal Circuit (CAFC) said the basic purpose of the equitable adjustment is "to keep a contractor whole when the Government modifies a contract."  But just what does the REA look like and how should one go about writing it?  And what should a contracting officer expect to see?  (The contracting officer should reject a REA not meeting the standard we suggest.)

There is a time honored formula for putting the REA together and a recognized format for its presentation.  First, there is a change narrative containing the following information:

1. A summary of the government act or omission giving rise to the REA.
2. A statement of the contract requirements and a description of the anticipated performance under the contract.
3. A statement of the acts or omissions of the government that caused additional work, increased cost of performing the work or delay in completing the work as originally contemplated in the contract.
4.  A detailed description of the cause and effect relationship between the acts or omissions of the government and the additional costs or the delay involved.
5. A detailed computation of the extra, unanticipated costs and delay.
6. A legal brief discussing the facts and the applicable legal theories supporting the recovery sought.

Then, there is an indexed and tabbed appendix containing contract excerpts, pertinent contract specifications, correspondence, charts, tables, photographs, technical write-ups and expert opinions, if applicable.


There is no requirement to follow this outline.  However, we have seen too many so called REA's falter or fail because they are deficient in one or more categories of this outline.  The most common errors are 1) great stories in search of a theory of recovery or 2) great recitations of the law in search of facts supporting the request. No matter how you construct your presentation, it should at least include the elements in this outline.


Contracting officers should insist that REA's follow this format.  Frankly, if a contractor fails to do so, the contracting officer should send the request back to the contractor and insist that the contractor followed the time-honored outline.


We'll discuss the theories of recovery in the coming weeks.  We also have a six page thorough discussion of what the REA should contain if anyone is interested.


Postscript:  The same outline should be used when submitting a claim under a commercial item contract.


bill@spriggslawgroup.com      http://spriggsconsultingservices.com/
                                                  http://www.spriggslawgroup.com/

SEQUESTRATION CLAIMS PREDICTED

The retiring CEO of Lockheed Martin, Robert Stevens, warned yesterday that contract claims are coming as a result of sequestration.  Lockheed Martin has some 40,000 suppliers, he said. "My sense is, those 40,000 suppliers will say [sequestration] is a business disruption and we will provide a claim to you for the adverse cost impact for the disruption in that business."  Stevens was quoted in an article in Federal News Radio today, written by Jason Miller.  http://www.federalnewsradio.com/index.php?nid=851&sid=2911052.

Stevens went on to say that when Lockheed Martin and its suppliers do not produce at the planned rate, the capital investment they have made does not get amortized as planned.  He expressed the result as driving up unit costs for which contractors would seek "equitable adjustment" to their contracts.  Equitable adjustments are claims in the making.

We written often about government threatened shutdowns can create claims.  But, in the past, we've not heard the CEO of a major government supplier sound the warning.  My guess is that Mr. Stevens is particularly insightful or he is a good listener (to his lawyers).

One of the type of claims to which Mr. Stevens may be referring is called unabsorbed overhead.  A contractor plans to amortize its overhead in a certain fashion over certain contracts as written.  Then the offending contract is changed through a government act or omission.  The contractor often has recovered overhead, G & A and profit based on its inability to recover these costs and their attendant profit as planned.  Contractors may well be entitled to compensation in the form of unabsorbed overhead, and perhaps other types of costs, as a result of sequestration.

The government has an absolute defense called the "sovereign act" defense which immunizes the government when the legislation merely has an incidental and not intentional impact on individual contracts.  You be the judge as to whether that will work.  Sequestration apparently was designed to produce the very impact on contracts Mr. Stevens predicts.  Under that interpretation, the defense will not work.

More on this as the countdown to sequestration continues.

Related article: http://spriggslawgroup.blogspot.com/2012/07/misuse-of-terminations-for-default.html

bill@spriggslawgroup.com  http://www.spriggslawgroup.com/

THE TROUBLESOME T FOR C CLAUSE IN COMMERCIAL CONTRACTS

The termination for convenience provision in FAR Part 12 commercial item contracts is troublesome from any viewpoint.  The government has the right to terminate for its convenience just as with any other government contract.  However, the contractor's remedy appears to be far different.  Is it?  Should it be?

In what we will call regular government contracts (all those other than commercial item contracts), the contractor's remedy is recovery of essentially all its costs including its costs of preparing the termination settlement proposal.  In commercial item contracts, the contractor's remedy is recovery of the percentage of price for work performed and "any charges" that "directly resulted from" the termination.

The Armed Services Board of Contract Appeals (ASBCA) took this language to mean the contractor could not recover its costs of preparing to perform the terminated work (which would normally be recoverable under regular government contracts). The case was appealed and the appellate court reversed, but the appellate reasoning is not binding on the ASBCA in other cases.

As of now, it is uncertain whether recovery under the T for C clause in commercial item contracts includes costs incurred in preparing to perform terminated work.  In fact, just what "charges" means is still up in the air.  It also is unclear whether "directly resulted from" (the clause does not add "directly" -- that word is in the regulation only) should limit recovery to post termination costs.

Any day now, we may see clarification from the ASBCA.  The Civilian Board of Contract Appeals (CBCA) takes a broader view of recovery under the commercial item T for C clause.  It recognizes recovery of costs that are unamortized as a result of the termination.

Indeed, the regulatory history of the troublesome work "charges" indicates the proposed rule language was "actual direct costs" were allowable.  The word "charges", of course, is the word used in the Uniform Commercial Code (UCC) to describe all types of damages.

We suggest the word charges be viewed as another way to refer to actual costs. Given the broad usage today of commercial item contracts, we think it only fair look at the work "charges" in the broader sense of all allowable costs.

Postscript:  Don't forget, the Part 31 cost principles do not apply and the government has no audit rights as result of termination for convenience of commercial item contracts.  However, if the contract is indeed for a commercial item, it would seem fair that commercial incidental and consequential damages should be available.  In the commercial world, a termination for convenience would be a breach of contract.

bill@spriggslawgroup.com   www.spriggsconsultingservices.com

THE ILLUSORY CHANGES CLAUSE IN COMMERCIAL CONTRACTS

If you have a FAR Part 12 commercial item contract, you really don't have a changes clause in your contract.  The changes clause is illusory since changes can only be made bilaterally, there is no provision for unilateral changes and the language directing compliance subject to equitable adjustment in price and schedule is totally absent.  Changes may be made by mutual agreement only.

So what happens to the doctrine of constructive changes which contractors have used for over half a century to seek recovery for various government acts and omissions under government contracts? We need a little history lesson.

Early on, the Boards of Contract Appeals (BCA's) had no jurisdiction over breach of contract claims.  They only could decide cases involving claims "arising under" contract clauses.  So, they devised a way to remedy breach claims under the changes clause by calling the breaches constructive changes.  Pretty soon, all types of breaches became constructive changes.  In 1978, Congress remedied the situation by instituting the "all disputes" clause allowing the Boards to hear cases involving claims "relating to" the contracts.

In commercial item contracting, contractors may submit breach of contract claims notwithstanding the absence of a changes clause.  The same breach theories, previously parading as constructive changes, still exist.  For example, the government breaches the contract by:  failure to provide specifications free from errors, conflicts or omissions; failure to cooperate and communicate with the contractor and do everything reasonably necessary to enable the contractor to perform; failure to disclose information vital to performance, etc.

As a practical matter, you may wish to present your request for relief under FAR Part 12 commercial item contracts as a request for equitable adjustment, just as you would on a regular government contract.  However, you actually are seeking damages for breach of contract which may entitle you to incidental and consequential effects such as lost anticipated profits.

We'll discuss this more.  The BCA's have only recently begun dealing with these issues.

bill@spriggslawgroup.com   www.spriggsconsultingservices.com

THE CHRISTIAN DOCTRINE

The Christian Doctrine in government contracts derives its name from a case in 1965 called G.L. Christian & Assoc. v. United States, 160 Cl. Ct. 1 (Cl. Ct. 1963).  You've heard me say over and over again that government contracts are contracts of adhesion, meaning the government dictates their terms and conditions.  The Christian Doctrine states that a mandatory clause involving important public policy will be read into a government contract by operation of law even if the clause is left out of the contract document.

Yes, a contract clause may be read into your contract even though it is not there.  The law effectively inserts it.

How do you know which clauses will be read into your contract?  There are over 100 such clauses.  You cannot find a list anywhere.  They are found in the various cases arising from the tribunals handling contract disputes.

You can however, rely on a couple of rules of the thumb.  If the clause is mandatory in statute or regulation, if it represents significant public policy or if it is designed to protect or benefit the party seeking its incorporation, it probably will be read into the contract.

Christian involved the termination for convenience clause which was missing but which was read by the court into the contract.  Other examples of clauses read into contracts is various reported cases are:    Changes, Disputes, Termination for Default, cost or pricing data clauses, interest payment provisions, labor law related provisions, small business provisions, ethics and conduct provisions, assignment of contract clauses, Buy American clauses, intellectual property provisions (note the Christian Doctrine will read into the contract the most favorable to the government version) and cost accounting and auditing principles, to name but a few.

So heads up on what is not in your contract.  It may be there after all.

bill@spriggslawgroup.com  www.spriggsconsultingservices.com

THE BUILT IN BIAS OF BEST VALUE

Last year, I wrote a note about bias.  My intent was to send a message to contractors to quit complaining about biased contracting officers and evaluation  board members.  Over the years, we've also heard complaints that best value procurements, in particular, are breeding grounds for "wired" contract awards.

This subject just will not go away.  So here is another clarion call to contractors to give up on the bias argument.  Legally, it is almost impossible to win, anyway.  And the truth of the matter is best value, in its almost infinite subjectivity, builds the bias in the selection decision anyway.

The good news is that far and away most of the awards are made fairly.  But subjectivity is the name of the game.  And where there is subjectivity there is room for personal preferences.

That is not to say personal bias is rampant or condoned.  Public officials, though, are presumed to be acting in good faith, without bias or prejudice.  That says a lot.  The law says anyone who challenges a public employee on the grounds of bad faith, has an extremely heavy burden of proof.

As we've pointed out before, the subjective tradeoff process is described as part of a continuum of the best value selection process.  The regulation mentions "perceived benefits" suggesting they are seen through the eyes of the beholder, of course.  Talk of tradeoffs and perceptions lead to personal selection views.

That is not to say best value is without objectivity.  Section M evaluation criteria are extremely important in best value and that is where contractors should concentrate their efforts.  Going in, are the criteria clear and fair?  After award, were they followed?

The best value evaluation process is subjective.  The evaluation team must make an "assessment" of the contractor's ability to perform the work successfully.  The source selection decision is to be based on a "comparative assessment" using "business judgment" which involves "tradeoffs".

In our original piece, we suggested the federal government should use a more objective selection approach such as LPTA (lowest price, technically acceptable).  The problem there, of course, is that LPTA is good for grass cutting services but not sophisticated engineering services, for example.  LPTA may be fine but only if the "technically acceptable" bar is set at the proper height.

No, best value is the way you and I prefer to buy and it's good for the government as well.  Subjectivity is built in.  The bias of evaluator and decision maker assessments and judgments is built in.  Contractors should learn to live with it.

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GAO: UNEQUAL TREATMENT; FLAWED COST ANALYSIS

The Government Accountability Office (GAO) recently has sustained a protest on a major Central Intelligence Agency (CIA) financial services procurement.  Why?  Because the CIA held misleading discussions, failed to evaluate the proposals fairly, neglected to conduct a proper cost realism analysis and made an unreasonable source selection decision.

The CIA advised the protester during discussions that it "should" provide resumes for all proposed personnel for the lifespan of the contract.  But the agency then took the position that it was necessary only to provide resumes for the initial performance period.  GAO interpreted the word "should" as expressing a "mandate".  GAO said that the CIA's discussions were "misleading" and reiterated the rule that discussions "are required to be meaningful, equitable and not misleading."

Moreover, "agency personnel also may not engage in conduct that favors one offeror over another.  FAR 15.306(e)(1)."  "Disparate" treatment is not permitted, says GAO.

On the issue of prejudice, GAO said it is not necessary to decide what the protester would have done but for the misleading information.  A protester's "reasonable assertion of a claim that it could have improved its competitive position is sufficient to demonstrate prejudice."

Regarding cost realism, GAO said it will sustain a protest where the cost realism analysis was not thorough and well documented.  Here, GAO said the record reflects no meaningful agency consideration of the successful awardee's cost proposal.  Evaluation notes of "posed no issue" and "took no exception" were insufficient.  In short, the CIA failed to provide a reasonable basis for estimating the probable costs under the contract -- "a prerequisite to the award of very cost-reimbursement contract by the federal government."

Thus, GAO recommended reopening the record, performing a reasonable cost realism analysis, holding meaningful discussions with both offerors, providing another round of final proposals, conducting a new evaluation and making a new source selection decision.  Protester collects its fees and expenses.

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WHAT MYTHBUSTERS I AND II MISSED

The Office of Federal Procurement Policy (OFPP) has included guidance to best practices for communicating between industry and government in its myth busting memorandums. However, it has missed an opportunity in the critical area of debriefings to be more specific about what is to be discussed.

Myth-Busters (OFPP's preferred spelling) I did not discuss FAR 15.505 and 506 on debriefings, but it had this to say:

Misconception -- "A protest is something to be avoided at all costs -- even if it means the government limits conversations with industry."  Fact -- Restricting communication won't prevent a protest, and limiting communication might actually increase the chance of a protest -- in addition to depriving the government of potentially useful information.

This was a great opportunity for OFPP to discuss best practices for debriefings under FAR 15.505 and 506.

Myth-Busters II has a section urging contractors to ask for debriefings:

Misconception #8 -- "If I lose the competition, I shouldn't bother to ask for a debriefing.  The contracting officer won't share any helpful information with me."  Fact -- Unsuccessful offerors should ask for a debriefing to understand the award decision and to improve future proposals.

While Myth-Busters II says Myth-Busters I "encouraged" debriefings, neither document discusses the nature, breadth and depth of the information provided.  FAR 15.506, for example, mandates a discussion of the "rationale for award" and requires "reasonable responses to relevant questions" about the source selection procedures followed.  It lists six categories of information which "at a minimum" shall be included in the debriefing.

We view the myth busting campaign a perfect opportunity for OFPP to promote best practices, in detail.  OFPP has not issued a Guide to Best Practices for Contract Administration document since 1994 -- until now.  Myth busting is a great vehicle to promote guidance to best practices.

Debriefings should at the very least contain a "rationale for award" and "reasonable responses to relevant questions" about the source selection decision.


Postscript:  We think written debriefings, although permitted, do not comply with the letter and spirit of FAR 15.506.  We see far too many written debriefings and the reason, we suspect, is not always that the contracting officer is too busy to comply with FAR 15.506.  This also is a reminder that the protester's lawyer can see the entire procurement file under a protective order in a GAO or court protest.


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PROPER CERTIFICATION (SHALL MEANS SHALL)

In another case of shall means shall, the Civilian Board of Contract Appeals (CBCA) dismissed an appeal on May 30th in which the contractor had decided to get creative with the certification of claims requirement in FAR 33.207(c).  The contractor certified its claim as follows:

I certify that this invoice is correct and in accordance with the terms of the contract and that the costs incurred herein have been incurred, represent the payments made by the Contractor except as otherwise authorized in the payments provision of the contract, and properly reflect the work performed.

FAR 33.207(c) states the contractor shall certify as follows:

I certify that the claim is made in good faith; that the supporting data are accurate and complete to the best of my knowledge and belief; that the amount requested accurately reflects the contract adjustment for which the Contractor believes the Government is liable; and that I am duly authorized to certify on behalf of the Contractor.

A defective certification deprives the judicial tribunal of jurisdiction over the claim; but the defective certification can be corrected under certain circumstances.  But not in this case.

If the certification is made with intentional, reckless or negligent disregard for the applicable regulation, it is not correctable.

In this case, the contractor's certification wholly omitted the words "the claim is made in good faith."  Fatal.  It also omitted "the supporting data are accurate and complete to the best of my knowledge and belief."  Again, fatal.  Finally, the certification omitted the third and fourth prongs of the certification.  Finally, fatal.

The CBCA determined that the contractor's failure to submit a certification using the proper language was either intentional or negligent, not innocent or inadvertent.  Case dismissed.

The lesson (for government and industry):  Shall means shall.

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